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The Importance of Identifying the Correct Contracting Party in a Contract

In Derek Hodd Limited v Climate Change Capital Limited [2013] EWHC 1665 (Ch), the Claimant
drafted a contract for use with a dormant group company, when in fact the contract should have
been with the Defendant, who was the main operating company.

The Claimant alleged that the Defendant owed it approximately £142,000 in unpaid fees and that it had intended to contract with the Defendant but had mistakenly used the wrong company
name from the Companies House website. The Claimant further argued that references to the dormant group company were a mistake and that the Court should correct the error.

The Defendant argued that no contract had been concluded due to a mistake in identifying it as the contracting party. The Court rejected the Defendant’s argument and held the parties had intended the contracting party to be the Defendant not the dormant group company. In making its decision, the Court stated that it would not be confined to reading the document without regard to its background or context. In this instance, this approach produced a favourable result for the Claimant.

The second recent case on this issue, Liberty Mercian Ltd v Cuddy Engineering Ltd [2013] EWHC 2688, illustrates how this same approach can produce an unfavourable result for a Claimant. In this case, the Claimant negotiated a contract with a business called The Cuddy Group. Prior to the parties signing of the contract, the Claimant’s solicitor undertook a Companies House search to look for a company trading under the name of “Cuddy Group”.

The solicitor identified Cuddy Civil Engineering Limited (“CCEL”) and assumed that it was the correct contracting party. The solicitor wrote to the representatives of the Cuddy Group requesting that references in the contractual documentation to The Cuddy Group as the contracting party should be changed to CCEL. The representatives did not object and the contract was signed with CCEL as the
contracting party.

However, CCEL was in fact a dormant company within the Cuddy Group and it was common ground that the “Cuddy Group” was a reference to the trading name of the operating company, “CDDL”.

Following various complications in relation to the contract, the Claimant sought a declaration from the Court that the contract was entered into by the operating company CDDL, not the dormant company CCEL. Following the approach in Derek Hodd Limited, the Court considered the extrinsic background evidence to determine whether to correct the error.

The Court held that as the Claimant had made a positive request that the other contracting party be changed from the party that the Claimant had intended to one it had not intended, it could not then revisit that choice by claiming that the choice was a mistake, which should be corrected by the Court.

Both these cases serve as useful reminder of the importance of identifying the correct contracting party when drafting a contract. It is clear from these cases that taking the time to verify the exact identity of the contracting party from the outset can avoid unnecessary disputes in the long run.

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